Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

As an investor, you just bought 200 shares of ABC at $20/ share. Ignore brokerage commission. You chipped in $2500 yourself, and borrowed the rest

image text in transcribed

As an investor, you just bought 200 shares of ABC at $20/ share. Ignore brokerage commission. You chipped in $2500 yourself, and borrowed the rest from your broker. Nothing else is on your account. Please label your answers 1-5. 1. Suppose you sell the 200 shares of ABC when its price appreciates 20% and pay off your broker. If the interest payment for this time period is $100, what is the return (in \%, on your investment? 2. Suppose you are forced to sell the 200 shares of ABC when its price depreciates 20% from the original $20 /share. If the interest payment for this time period is $100, what is the return on your investment? 3. What does the answers from 1. and 2. say about buying on margin? 4. Suppose instead of buying 200 shares of ABC at \$20/share, you shorted 200 shares at $20/ share. You had $2500 cash on the account and nothing else. When will you more likely to get a margin call from your broker, ABC 's price goes up to a certain level or goes down to a certain level? 5. Continue from 4., even if your margin stays above the required maintenance level, can your broker still call you to cover your short position? Why? Explain

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Derivative Products And Pricing The Das Swaps And Financial Derivatives Library

Authors: Satyajit Das

1st Edition

0470821647, 9780470821640

More Books

Students also viewed these Finance questions

Question

What would you do?

Answered: 1 week ago